Penguin Group (USA) Inc v. Am. Buddha, 7
| Decision Date | 24 March 2011 |
| Docket Number | No. 7,7 |
| Citation | 2011 NY Slip Op 02079 |
| Parties | Penguin Group (USA) Inc., Appellant, v. American Buddha, Respondent. |
| Court | New York Court of Appeals Court of Appeals |
Richard Dannay, for appellant.
Submitted by Charles H. Carreon, for respondent.
Michael H. Page, for Public Citizen, amicus curiae.
International Trademark Association; American Association of Publishers et al., amici curiae.
The United States Court of Appeals for the Second Circuit has asked us a question regarding the scope of long-arm jurisdiction under CPLR 302 (a) (3) (ii) in the context of a federal copyright infringement action.
Plaintiff Penguin Group (USA) is a large trade book publisher with its principal place of business in New York City. Defendant American Buddha is an Oregon not-for-profit corporation whose principal place of business is in Arizona. It operates two Web sites — the American Buddha Online Library and the Ralph Nader Library 1 — that are hosted on servers located in Oregon and Arizona.
Penguin commenced this copyright infringement action against American Buddha in the United States District Court for the Southern District of New York, alleging that American Buddha infringed on Penguin's copyrights to four books: "Oil!" by Upton Sinclair; "It Can't Happen Here" by Sinclair Lewis; "The Golden Ass" by Apuleius, as translated by E.J. Kenney; and "On the Nature of the Universe" by Lucretius, as translated by R.E. Latham. The complaint alleges that American Buddha published complete copies of these works on its two Web sites, making them available free of charge to its 50,000 members and anyone with an Internet connection. The electronic copying and uploading of the works was apparently undertaken in Oregon or Arizona.
American Buddha's Web sites assure its users that its uploading of these works and the users' downloading of them do not constitute copyright infringement because they are protected under sections 107 and 108 of the Copyright Act (17 USC § 101 et seq.), which govern fair use and reproduction by libraries and archives. Penguin disputes that any exception to the Copyright Act applies to American Buddha's activities.
American Buddha moved to dismiss the complaint for lack of personal jurisdiction, arguing that its ties to New York were too insubstantial. In response, Penguin asserted that it had secured long-arm jurisdiction over American Buddha by virtue of CPLR 302 (a) (3) (ii), which provides jurisdiction over nondomiciliaries who commit tortious acts outside the state that result in injuries within New York. American Buddha countered that CPLR 302 (a) (3) (ii) was inapplicable because Penguin did not suffer an in-state injury.
The district court granted American Buddha's motion and dismissed the complaint, holding that Penguin was injured in Oregon or Arizona, where the copying and uploading of the books took place. The court determined that Penguin suffered only a "purely derivative economic injury" in New York based on its domicile here, which was insufficient to trigger CPLR 302 (a) (3) (ii). Although the court acknowledged that the Internet could be a complicating factor in analyzing personal jurisdiction, it concluded that the Internet played "norole in determining the situs of [Penguin's] alleged injury" since the claimed infringement occurred in Oregon or Arizona.
Recognizing a split of authority in the New York district courts regarding the application of CPLR 302 (a) (3) (ii) to copyright infringement cases against out-of-state defendants, the Second Circuit certified the following question to us:
"In copyright infringement cases, is the situs of injury for purposes of determining long-arm jurisdiction under N.Y. C.P.L.R. § 302 (a) (3) (ii) the location of the infringing action or the residence or location of the principal place of business of the copyright holder?" (609 F3d 30, 32 [2d Cir 2010]).
The Second Circuit invited this Court to "alter this question as it should deem appropriate" (id. at 42) and noted that, "in the context of certifying a question to the New York Court of Appeals[,]... the allegation of distribution over the Internet may be a factor in the Court's interpretation of the statute in question" (id. at 39).2
Because the Internet plays a significant role in this case, we narrow and reformulate the certified question to read:
In copyright infringement cases involving the uploading of a copyrighted printed literary work onto the Internet, is the situs of injury for purposes of determining long-arm jurisdiction under N.Y. C.P.L.R. § 302 (a) (3) (ii) the location of the infringing action or the residence or location of the
principal place of business of the copyright holder?
In answer to this reformulated question and under the circumstances of this case, we conclude it is the location of the copyright holder.
CPLR 302 (a) (3) (ii) allows a court in New York to exercise personal jurisdiction over an out-of-state defendant when the nondomiciliary:
"3. commits a tortious act without the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if he
...
"(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce."
Consequently, a plaintiff relying on this statute must show that (1) the defendant committed a tortious act outside New York; (2) the cause of action arose from that act; (3) the tortious act caused an injury to a person or property in New York; (4) the defendant expected or should reasonably have expected the act to have consequences in New York; and (5) the defendant derived substantial revenue from interstate or international commerce (seeLaMarca v Pak-Mor Mfg. Co., 95 NY2d 210, 214 [2000]). If these five elements are met, a court must then assess whether a finding of personal jurisdiction satisfies federal due process (see id. at 216). The only issue before us concerns the third requirement — whether an out-of-state act of copyright infringement has caused injury in New York.
Penguin, supported by amici curiae American Association of Publishers and other national publishing organizations, argues that a New York-based copyright holder sustains an injury in New York for purposes of CPLR 302 (a) (3) (ii) when its copyright is infringed through the out-of-state uploading of its protected work onto the Internet. American Buddha and amicus curiae Public Citizen respond that this case is controlled by Fantis Foods v Standard Importing Co. (49 NY2d 317 [1980]), where we held that a derivative economic injury felt in New York based solely on the domicile of the plaintiff is insufficient to establish an in-state injury within the meaning of the statute. Both parties raise compelling arguments.
Our analysis begins with Fantis Foods, where we found personal jurisdiction to be lacking in the absence of a "direct injury" within New York. In that case, Standard, a New York wholesaler of feta cheese, asserted a claim for conversion against a Greek entity that had diverted a cheese shipment — meant to be shipped to Standard in Chicago — to a competitor while theshipment was in Greece or on the high seas. We concluded that personal jurisdiction over the Greek defendant did not lie under CPLR 302 (a) (3) (ii) because:
(id. at 326).
In a different commercial tort context, in Sybron Corp. v Wetzel (46 NY2d 197 [1978]), we held that an injury had occurred in New York under CPLR 302 (a) (3) (ii). The defendant inSybron, a nondomiciliary corporation, hired a former employee of Sybron — a competitor engaged in manufacturing in New York — allegedly to obtain Sybron's protected trade secrets. Recognizing that the locus of injury in commercial cases "is not as readily identifiable as it is in torts causing physical harm" (id. at 205), we determined that Sybron sustained a sufficiently direct injury in New York to support jurisdiction under CPLR 302 (a) (3) (ii) since its claim was based on more than just its in-state domicile. Rather, Sybron had alleged that it acquired the trade secrets at issue in New York and, further, that the defendant's unfair competition threatened to pilfer Sybron's significant New York customers.
Fantis Foods and Sybron both cited favorably to American Eutectic Welding Alloys Sales Co. v Dytron Alloys Corp. (439 F2d 428 [2d Cir 1971]). There, the plaintiffs, two related New York corporations, brought an action against an out-of-state competitor alleging that it induced their employees to work for the competitor and to use confidential information to lure away plaintiffs' customers in Kentucky and Pennsylvania. The Second Circuit identified three options for determining the situs of injury under CPLR 302 (a) (3) (ii) in a commercial tort case: "(1) any place where plaintiff does business; (2) the principal place of business of the plaintiff; and (3) the place where plaintiff lost business" (id. at 433, quoting Spectacular Promotions, Inc. v Radio Station WING, 272 F Supp 734, 737 [ED NY 1967] [Weinstein, J.]). The Court determined that the third choice "seem[ed] most apt," observing that "[t]he place where the plaintiff lost business would normally be a forum reasonably foreseeable by a tortfeasor" (id. [internal quotation marks and citation omitted]). Because plaintiffs alleged a loss of business only in Kentucky...
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...is domiciled there." 49 N.Y.2d 317, 326, 425 N.Y.S.2d 783, 402 N.E.2d 122 (1980) ; see also Penguin Grp. (USA) Inc. v. Am. Buddha , 16 N.Y.3d 295, 302–04, 921 N.Y.S.2d 171, 946 N.E.2d 159 (2011) (collecting cases). For this reason, "remote injuries located in New York solely because of domi......